Bank gives PKN Orlen 'Sell' rating with petchem margins set to fall

LONDON (ICIS)--Erste Group Bank has re-initiated its stock coverage of Polish oil and petrochemicals group PKN Orlen with a "Sell" rating, the bank said on Monday.

Orlen's model petrochemical margin would be under pressure this year and according to Erste's latest forecasts would fall to €650/tonne ($878/tonne) versus the €685/tonne that was recorded for 2012, it added.

Combined with lower refining margins year on year, the failure to improve the model petrochemical margin would put Orlen's earnings under pressure in 2013, said Tamas Pletser, an analyst at Austria-based Erste.

Erste said it also pinned a "Sell" rating on Orlen stock because its bank analysts were sceptical about the group's plan to make spend more than a billion euros in unlocking shale gas resources in Poland.

In a note on the planned investments, Pletser said: “Polish shale gas carries primarily a geological risk, in our view, while there are also a lot of differences compared to the US from a legislation and market point of view. Poland is preparing new legislation and taxation proposals. Some press reports have estimated a 40% royalty, which would halt gas drilling in Poland, in our view, given the high costs.”

Further scepticism was expressed by Erste regarding whether Orlen's plans to invest in gas-fired power plants can pay off.

“Gas-fired blocks could have a generally lower return ex-CO2 costs than traditional coal-fired blocks in Poland,” said Pletser.

“The only positive development we see is that the energy supply of the refining and petrochemical units will be more secure, which is a significant advantage in an energy hungry country where the ailing [largely coal-fired] power sector has to be replaced within the next decade,” he added.